Goals and governance of the corporation - agency problems, executive compensation and corporate governance

4 important questions on Goals and governance of the corporation - agency problems, executive compensation and corporate governance

What are agency problems and how do they arise?

agency problems are only in public corporations, because the manager act in their own intrest rather than maximizing the value , they may shy away from risky investments because they are afraid to lose their job. these actions occur because the managers are not the shareholders but the agents of the shareholders. they can also occur because the manager wants to create an empire and buy other companies to make it one big one

What are agency costs?

because of agency problems, agency costs occur. for example when the CEO of a big company took his wife to Bora Bora with the company jet.

How do companies try and minimize agency problems?

companies give executive compensations to their CEO's, which means the CEO gets shares and restricted shares instead of a wage. this means it is in his own best interest to maximize the market value of the corporation
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Is the corporate governance the same around. the world?

no, in france and germany they have 2 boards of directors (one chosen by the employees)

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